To get the formalities out of the way: I work at EA, but this is my private blog. The views and opinions expressed here are mine, and mine alone. (Unless it’s something really stupid, then my cat typed it.)

Also, nothing in here reflects knowledge internal to EA. Not only am I a lowly peon in a large machine who doesn’t get told anything of importance, I certainly wouldn’t share if I was told internal info either. Professional pride and all that.

While those are valid concerns, they miss a major fact that’s looming for video games: AAA games are getting expensive enough that they just might outgrow the size of their market, core video gamers. And even if they don’t, it is a rather crowded market, and revenue only arrives in bursts every 2-4 years for each title.

What EA is doing here is branching out into a market with a far larger customer base, lower costs, and monthly revenue. And, more importantly, server-based games can’t be pirated. EA just cut out a large threat that is in the process of killing the PC market and even has significant impact on the console market. (After all, Microsoft just killed almost a million accounts on XBox live for hacking)

Furthermore – assuming Playfish indeed delivers on its revenue & profit valuations – EA has traded cash-on-hand against a profitable revenue stream. And while it’s nice to sit on $2.2B cash, a positive cash-flow is a better choice in the long term.

And then there are the layoffs. While I appreciate the sentiment of many online commenters that “EA shafted their employees to buy Playfish”(paraphrased), that’s almost certainly not true. As I said above, EA has plenty of cash to go buy something. There was no need to cut jobs for that acquisition, and I don’t think there’s any relation.

Riccitello simply realizes that the console games market as is has matured and is saturated. There’s only room for so many titles, so it makes sense to focus on those with the best chances to make money.

Yes, gamers are now going to scream about the “evil EA” that just produces sequels – but I believe the sales numbers of all the excellent new IP EA has produced last year clearly tell the story. Vocal gamers profess a love for new IP, but what’s mostly getting bought is the sequel to the established title.

Leaving out Nintendo consoles – because they thrive on mostly first-partly titles – let’s look at the top titles for the year so far:

Halo 3

Resident Evil 5

Killzone 2

Call of Duty: World at War

FIFA Soccer 10

Call of Duty: Modern Warfare 2

Notice a trend there? Every single one is a sequel. Gamers buy what they perceive as “established quality”. And I can’t really blame them – $60 is a lot of money to invest for entertainment.

To be clear: I have NO insight what titles actually have been cancelled. EA remains tight-lipped about that. For all I know, we might have cancelled only sequels and focused on new IP, although I’d consider that unlikely.

And for analysts like Pachter, who now complain that EA “didn’t spot” the underperforming titles last year: It is incredibly hard to judge what a game will be until you’re at least a year or so into execution. Making games is not formulaic. It takes a great idea, an awesome team, and a spark of magic to make a good game happen. You can control the first two, but the last one is out of your control. You’ll see it manifest at some point, but it takes some work before you know it’s there or not.

So, even though I don’t like it on a personal level, I think EA has at least the right ideas. You can certainly debate the merit of the concrete steps taken, but I believe AAA console games will shrink in importance, while online gaming increases – so this seems a decent decision. Lots of things could have done better; we certainly have internal talent capable of building social games. But we missed the boat, and that means there was pressure to buy market share out of the box.

What I do have an issue with is the handling of this, though. If you have to lay off people, let them know. Then people at least know where they stand. There is still no official word on what studios and titles will be affected by those 1,500 layoffs – which means everybody is worried to some extent. It is incredibly hard to do good work if you don’t know you’ll still have a job the next day – and that endangers that spark of magic I mentioned, the one ingredient to a successful game that’s incredibly hard to come by in the first place.